The Welshman departed Doncaster in order to succeed Stale Solbakken at Molineux in January but won just five of his 20 games in charge.
And, after Wolves' relegation to League One was confirmed on Saturday, Saunders and assistant boss Brian Carey have now departed the club.

A statement on the club's official website regarding the impending search for a new manager read: "Wolves have now begun a recruitment process, which, in conjunction with the board, will be managed by head of football development and recruitment Kevin Thelwell.
"The club will now take as long as is necessary to make this crucial appointment and there will be no publicly communicated timescales.

"Wolves would like to thank Dean and Brian for their efforts in what has been a very difficult period for everyone, and wish them both the very best for the future.
"The club will be making no further comment at this stage."

Saunders was forced to wait until his 10th game in charge to lead Wolves to victory, as they beat Millwall 2-0 at the New Den in March.
Following that result, the Swansea-born boss oversaw a run of four wins in five outings, but the Midlands club subsequently lost five of their last six games to go down.

Wolves are in fact the first team to twice suffer successive relegations from the top of the English football pyramid to the third tier.
And Saunders' misery will be compounded by the fact that his former club Doncaster secured automatic promotion to the Championship on the final day of the League One season.